FedEx Has Quarterly Profit, Reversing a Year-Ago Loss

This story appears in the June 21 print edition of Transport Topics.

FedEx Corp. reported a profit for its fiscal fourth quarter, rebounding from a loss a year ago, as a recovering global economy boosted international express shipments.

FedEx, Memphis, Tenn., earned $419 million, or $1.33 a share, in the three months ended May 31, compared with a net loss of $876 million, or $2.82 a share, in its 2009 fourth quarter. Revenue rose 20% to $9.43 billion, FedEx said in its June 16 earnings report.

The 2009 quarter included $1.08 billion in one-time charges. However, even with that charge taken out, FedEx’s latest result beat the adjusted year-ago total by 69 cents a share, company figures show.

FedEx had “a strong fourth quarter,” Chairman and Chief Executive Officer Frederick Smith said on a June 16 conference call. “Major global economies began emerging from recession in the second half” of FedEx’s 2010 fiscal year.

Moreover, “we expect stronger demand for our services and continued growth in revenue and earnings as global economic conditions continue to improve,” Smith said.

The fourth quarter also was an improvement over the prior three months. It earned $239 million in the fiscal third quarter ended Feb. 28, putting an end to four consecutive quarters of either widening losses or declining profits.

FedEx also said it earned $1.18 billion, or $3.76 a share for the full fiscal year, a dramatic improvement from the $98 million, or 31 cents a share, that it earned in the 2009 fiscal year. Annual revenue fell 2% to $34.7 billion.

It also stated it expects to earn 85 cents to $1.05 a share in its first fiscal quarter, and $4.40 to $5 a share in the 2011 fiscal year. Every FedEx transport unit bested its year-ago ­results during the fourth quarter, with the exception of FedEx Freight, its less-than-truckload unit.

Air-based FedEx Express had a quarterly operating income of $413 million, up from an operating loss of $136 million, the company said. Express revenue jumped 23% to $5.88 billion.

“Shipments by air are growing, largely [because] inventories [are] too lean to meet customer demand using slower means of transportation,” Smith said.

Moreover, “the restocking process . . . will continue in the short term [and] the improving economy will result in a more stable pricing environment” and improved yields for all of FedEx’s transportation businesses, Smith added.

A 23% increase in international priority package shipments, mostly resulting from increased exports from Asia, also helped results at the Express division.

Quarterly operating income at truck-based FedEx Ground soared 57% year-over-year to $319 million. Revenue rose 15% to $1.96 billion as Ground gained market share, Smith said.

Conversely, FedEx Freight, the LTL segment, reported an operating loss of $36 million, which was nevertheless an improvement compared with the $106 million that it lost in the fiscal 2009 fourth quarter.

The latest results include an $18 million write down from FedEx’s previous acquisition of Watkins Motor Lines, which now operates as FedEx National LTL.

LTL revenue per hundredweight, an indicator of pricing, declined to $16.69 from $17.78 in the fourth quarter, even as shipments per day rose 34% to 91,523, and average weight per shipment increased.

FedEx Freight’s “results, frankly, were a bit disappointing,” Chief Financial Officer Alan Graf said during the conference call.

FedEx Freight’s operations have been profitable in only three of the past eight quarters.

The recession left LTL carriers mired in a marketplace plagued by overcapacity and loose rates. While capacity has tightened somewhat in 2010 and rates have started to stabilize (click here for previous story), FedEx’s Smith said that the “LTL freight market remains highly price competitive due to continued excess capacity.” Nevertheless, FedEx Freight said that it is poised to purge its LTL network of unprofitable freight, and that the unit would take a harder stance in renegotiating rates with some customers.

In the fourth quarter, “the most challenging issue we faced was a higher than expected growth rate from our heavily discounted customers,” said T. Michael Glenn, FedEx’s executive vice president of market development and corporate communications. Therefore, “we’re reviewing accounts with less than acceptable margins, or that are driving a disproportionate tier of expenses.” If that means walking away from customers that won’t accept rate increases, “we’re prepared to do that,” said Glenn.

The company ranks No. 2 on the Transport Topics 100 list of the largest for-hire carriers in the United States and Canada.